Forex Technical Update

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EUR/GBP 7/27/2011 1H Chart
Sharp Retracement; Bullish Stance
- The EUR/GBP in the 1H chart is seen in a bullish stance despite the current downswing that started in the European session and is stalling in the US session.
- The RSI kissed 70 and is now still above 40. The market turned the SMA from a bearish slope to a flat one, with price above it, also a bullish stance.
- A break back below the 200SMA near 0.8797 would be a sign of a failed bullish attempt.
Flag Hits 200SMA:

- In the 4H chart however, we have a bearish stance.
- EUR/GBP is seen in the 4H chart rallying in a small channel, which could be interpreted as a flag pattern relative to the downswing from near 0.9080.
- A break above 0.8850 initiated some bullish strength, but the market is still held below the 200SMA, and the RSI reading is still kept below 60.
- This means the market still has a bearish stance, especially after an outside bar seen in reaction to the 200SMA.
- A break below 0.8797 therefore, can start the market back to the bearish mode.
Bearish Outlook
- A break below the rising support would be a first significant clue for bearish continuation. If the RSI reading falls below 40, we have more evidence.
- Only clearing below 0.87 fully signals a bearish continuation. Otherwise, look out for a bear trap to give way for further correction rally.
- The bearish outlook below 0.87 is limited to 0.8666 area (200SMA in the daily chart).
- Below that we have a rising trendline near 0.8560.
- Note that the 0.8666 area is near the 50% retracement level and the 0.8560 is near the 61.8% retracement of the rally from Jan to June (from 0.8345 to 0.9080).

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Fan Yang CMT
Chief Technical Strategist